The expansion of economic activity in the Second District has been essentially well-maintained, but scattered signs of deceleration have emerged since the last report. Consumer prices remain relatively stable, and input price pressures, overall, appear to be little changed from the last report, though there are some indications that wages have accelerated. Retailers indicate that sales were generally on plan in January and early February. There has been some pullback from the extraordinary levels of tourism activity seen in late 2006, and office hiring appears to have slowed a bit. Two regional consumer surveys showed confidence rising in January, with one index reaching a six-year high.

Manufacturers indicate that activity has rebounded in recent weeks and express optimism about the near-term outlook. Housing markets remain mixed: New York City’s rental market has tightened further and rents have accelerated; however, the market for single-family homes across most of the District remains sluggish. Manhattan’s tight office market slackened modestly in January. Finally, bankers report continued weakening in loan demand--especially for home mortgages--tighter credit standards, and a slight increase in delinquency rates on home mortgages.

Consumer Spending
Retailers report that sales were generally on plan in January and early February, with same-store sales running about 3-6 percent ahead of year-earlier levels. Prices for comparable goods are little changed from a year ago, though retail contacts generally indicate a continued trend in the mix of goods sold to more upscale lines. Contacts cite extensive gift card use in January, and note that the belated arrival of cold weather late in the month buoyed sales of winter apparel. Sales of home furnishings and equipment, however, remained sluggish. Retail inventories are said to be in good shape; in fact, one contact notes that sales gains were held back by a relative lack of clearance merchandise.

Two regional surveys indicate that consumers were in good spirits in early 2006. Based on Siena College’s survey of New York State residents, confidence rose for the fifth month in a row, reaching its highest level since late 2000. The Conference Board survey of Middle Atlantic residents showed consumer confidence edging up in January but remaining modestly below last October’s cyclical peak.

Tourism activity in the District has remained brisk, though there was a modest pullback from exceptionally high levels in New York City. Manhattan hotels report some deceleration in revenues in January. Still, both revenues and room rates were up 9 percent from a year earlier in January, versus gains of 12 percent in the fourth quarter. Similarly, Broadway theaters report that, since mid-January, both attendance and revenues have been running roughly 4 percent ahead of a year earlier, following gains of well over 10 percent in December and early January. Hotel occupancy rates in the Buffalo area have edged up, and bookings for upcoming events are reported to be strong.

Construction and Real Estate
New York City’s office market eased slightly in January, though rents remain markedly above comparable 2006 levels. Midtown Manhattan’s Class A vacancy rate rebounded to 6.0 percent--up from 5.6 percent in December, but still a ½ point lower than a year ago. In contrast, Lower Manhattan’s vacancy rate slipped 0.3 points to 6.8 percent in January and was down dramatically from 12.3 percent a year ago. Throughout Manhattan, asking rents are up by 25 percent or more over the past 12 months.

Housing markets continue to be mixed. New Jersey homebuilders report that the market for new homes, though still soft, appears to have stabilized in early 2007. However, one contact notes that harsh weather in February has made it difficult to assess market conditions. Builders are reported to have scaled back construction plans and have moved inventories by reducing prices and offering concessions. However, in other areas, adjacent to New York City, the market is reported to be fairly resilient.

The market for existing housing has also been mixed, with continued sluggish demand for single-family homes, but persistent strength in demand for multi-family units--particularly in New York City. Buffalo area Realtors report that both sales and prices for single-family homes were running below year-earlier levels in January, though a pickup in sales and a slight rise in prices is noted in the Rochester area. More generally, single-family home prices across the District are reported to be steady to slightly lower than a year ago. In contrast, Manhattan’s co-op and condo market has remained buoyant: thus far in 2007, both prices and the number of transactions are reported to be up from comparable 2006 levels. Manhattan’s apartment rental market has grown increasingly tight; a large real estate firm reports that rents have accelerated in recent months and have eclipsed previous highs set in 1999 and 2000.

Other Business Activity
A major New York City employment agency, specializing in office jobs, reports that hiring activity has slowed a bit in recent weeks, though it is unclear how much of that is weather-related; still, this contact notes that there remains a thin supply of available workers and estimates that salary offers are up 5-6 percent from this time last year. More generally, non-manufacturing firms in the District, noting steady expansion in general business activity, report continued strong hiring plans and increasingly widespread wage increases in February. These firms also report fairly pervasive increases in prices paid overall. New York State manufacturers report a rebound in business conditions in February and continue to express widespread optimism about the near term outlook; more than one in three plans to expand its work force in the months ahead. Firms also indicate less widespread increases in both prices paid and prices received than in recent months.

Financial Developments
Contacts at small to medium-sized District banks report decreased demand for all types of loans--particularly home mortgages, where 52 percent of bankers report decreased demand. A substantial fraction of bankers reports tightened standards for all categories of credit--particularly in the commercial mortgage category--while virtually none reported eased standards. Bankers indicate a modest increase in rates on consumer loans, but steady loan rates in other categories. Increased average deposit rates were reported. Finally, bankers report a moderate increase in delinquency rates on residential mortgages but little or no change in delinquencies on other categories.